The Optimist and the Pilot

According to most investment managers asset prices are high/elevated. Perma-bear sightings are an hourly occurrence.

On closer inspection, there is a disconnect between the investment manager’s newsletter and the cash levels of the portfolio.

Newsletter – cautious. Portfolio – fully invested.

It is rare for any investment manager letter to be bullish. Reputations have to be considered.

The words flamboyant and investment manager are rarely seen in the same sentence.


Perma-bears always appear considered and well researched. Incurable bulls tend to move like Dr Emmett Brown.

Perma-bears can’t make you money and rarely protect you. Despite this we all have our favourite perma-bear.

If I am looking for an incurable bull I have to step outside the investment community. I watch Elon Musk dig holes.

I am an optimist so I need a perma-bear balance.

Does China have a debt problem? If so what does the US have? China’s capacity to absorb non-performing loans is foolhardy. The Fed’s capacity to hold junk bonds is innovative and necessary.

My decision making needs a framework.

Fortunately the military has given us the innovator and educator John Boyd.

Boyd developed the combat OODA Loop for individuals (fighter pilots) and small teams.


When I am struck by blinding insight it is usually because I have subconsciously skipped the Orient phase. In reality I have no insight only data driven errors that can lead to poor decisions.

All competent investors can Observe, Decide and Act. Not all competent investors remember to Orient.

How have assets performed relative to their pre-GFC levels?


From the beginning of 2007 to today the S&P 500 is up over 71%.

A star asset over this period is the Sydney (Australia) residential property market. The Sydney Residential Index is up 109% (in US$) over this period. Sydney residential property is in the top ten US$/mglobally.


The above performance numbers are all based in US$.

My benchmark, the US$, has been dramatically devalued over this period.

Have asset prices appreciated or has my benchmark gone down?

I need to chose something other than a fiat currency for my benchmark. Gold?

Gold has devalued over this period in absolute terms. There is more of it above ground. However it is minuscule compared to the devaluation of the US$.

An ounce of gold will now buy twice as many US$ (from the beginning of 2007).


S&P 500 to Gold

When referenced to gold the S&P 500 is lower than its January 2007 levels. In US$ terms gold is up over 107% (in US$) whilst the S&P 500 is up over 71% (in US$).


I will leave this one up to you.

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